Reference no: EM13827247
Jimmy Carter Company has provided information on intangible assets as follows.
A patent was purchased from Gerald Ford Company for $2,582,000 on January 1, 2013. Carter estimated the remaining useful life of the patent to be 10 years. The patent was carried in Ford’s accounting records at a net book value of $1,979,000 when Ford sold it to Carter.
During 2014, a franchise was purchased from Ronald Reagan Company for $512,000. In addition, 7% of revenue from the franchise must be paid to Reagan. Revenue from the franchise for 2014 was $2,392,000. Carter estimates the useful life of the franchise to be 10 years and takes a full year’s amortization in the year of purchase.
Carter incurred research and development costs in 2014 as follows.
Materials and Equipment 138,300
Personnel 191,400
Indirect Costs 107,300 437,000
Carter estimates that these costs will be recouped by December 31, 2017. The materials and equipment purchased have no alternative uses.
On January 1, 2014, because of recent events in the field, Carter estimates that the remaining life of the patent purchased on January 1, 2013, is only 5 years from January 1, 2014
a) Prepare the intangibles section of Carter’s balance sheet at December 31, 2014.
b) Prepare the income statement effect (related to expenses) for the year ended December 31, 2014, as a result of the facts above.
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